## tarea2024020

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**Canonical URL:** [tarea2024020](https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024020.pdf)

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---

### Mission background and objectives
- A METAC mission was conducted from November 1 to 3, 2022, at Central Bank of Jordan (CBJ).
- Mission team: Mrs. Nehmat Hantas, Banking Supervision Advisor at METAC, and Mr. Sébastien Clanet, short-term expert from Banque de France.
- Purpose: assist CBJ supervisors in development of a supervisory risk-rating framework inspired by the European Supervisory Review and Evaluation Process (SREP) methodology.
- Project context: part of a multi-step project towards full implementation of Risk-based Supervision (RBS), focusing on defining steps and milestones to develop the Supervisory Review and evaluation Process (SRP).
- In-person location: Central Bank of Jordan (CBJ), Amman, Jordan.
- Meetings with: Head of Banking Supervision Department (BSD) Mr. Hussein Kofahi (executive manager); Mr. Marwan Said (consultant at BSD); heads of examiners Mrs. Zeinab Al-Jaafreh and Mr. Murad Assaf; group of supervisors from BSD.
- Closing meeting with Mr. Hussein Kofahi and Mr. Marwan Said to discuss roadmap, recommendations, and next steps.

### Executive Summary — core project thrust
- CBJ intends to enhance its risk-based supervisory framework and risk rating framework inspired by EU SREP and to progress toward RBS.
- Core element: implement a new Supervisory Review Process (SRP) aligned with international best practices while leveraging current supervisory reporting and rating tools.
- Mission recommendation: a progressive multi-step approach to implement full RBS, prioritizing a proportionate, simple, but robust SRP framework for analyzing and scoring banks.
- Key deliverables suggested:
  - Specific scoring guidance.
  - Potential IT support for database development and automation of key risk indicator (KRI) compilation.
  - Software applications for benchmarking.
- Project requires defined milestones and timeline for design, conception, testing, and implementation of SRP.
- Proposed SRP design: cover main risks of Jordanian banking system with high priority on credit risk; progressively add new risks; balance weighting of blocks and components to produce defendable scoring outputs.
- Implementation constraints: data gaps requiring a supervisory risk database, clearer allocation between off-site and on-site activities, and new regulations to integrate risks such as IRRBB.
- Resource implications: SRP implementation relies on strong local supervisory expertise, will be at least a medium-term project due to resource constraints and significant staff engagement.
- Roadmap to SRP discussed with CBJ to support authorities.

### Context — structure, metrics, and supervisory framework
- Banking sector size and composition:
  - Banks’ consolidated assets totaled JD 97.7 billion as at end-2021.
  - Sector accounts for approximately 97 percent of the financial sector’s total assets.
  - Number of banks: 21.
  - DSIB: six banks classified as Domestic Systemically Important Bank (DSIB).
  - Ownership: seven domestically owned banks, eight foreign-owned banks, six branches of foreign banks.
  - Islamic banks: four of 21 banks; total Islamic assets around JD 11.1 billion representing around (11.4 percent) of total banking sector assets.
  - Concentration: five largest banks account for 54 percent on a domestic consolidated basis.
  - Cross-border exposure: Jordan’s largest bank has over two thirds of its credit exposures outside Jordan.
- Capital and buffers:
  - Capital Adequacy Ratio (CAR) for banks stood at 18 percent on a consolidated basis, as of end-December 2021; Tier 1 capital composes 95 percent of CAR.
  - CBJ minimum CAR requirement: 12 percent, plus an additional 2 percent for banks with cross-border operations, in addition to a systemic DSIB buffer (up to 2.5 percent).
  - Capital conservation buffer: 2.5 percent.
  - Countercyclical buffer: (0 percent-2.5 percent), currently set at zero.
- Liquidity, asset quality, profitability:
  - Regulatory liquidity: 141.5 percent as at end December 2021.
  - Nonperforming loans (NPLs): average of 5 percent of total loans.
  - NPL coverage ratio: 79.9 percent of total classified loans.
  - Gross loans contribute approximately 55.8 percent of total assets; securities and trading related assets accounted for 32 percent (bulk is government securities).
  - Annualized average returns ending December 2021: return on assets 1 percent; return on equity 8.3 percent.
- Supervisory architecture and responsibilities:
  - Primary regulator/supervisor of banks: Central Bank of Jordan (CBJ).
  - Other authorities: Jordan Deposit Insurance Corporation (JODIC); Jordan Securities Commission (JSC); Amman Stock Exchange (ASE); Companies Control Department (CCD).
  - BSD structure: four offsite divisions and seven onsite supervisory groups (one group responsible for IT supervision); onsite groups also perform semi-annual financial statement analysis, follow up periodic reports, and study banks’ requests.
  - CBJ working to strengthen prudential supervision and to implement an Inspection Management System to improve onsite inspection procedures.
- Regulations issued (selected):
  - Regulatory Capital Instructions according to Basel III Standard No. 67/2016.
  - Capital Adequacy Instructions in accordance with amended standard No.15 issued by IFSB, No. 72/2018.
  - Legal liquidity instructions for commercial and Islamic banks.
  - LCR instructions.
  - ICAAP.
  - Maturity Ladder for commercial and Islamic banks.
- Recovery and resolution:
  - Article 80 of banking law no. 28 determines measures for banks facing problems.
  - CBJ is working on a draft guide for a banking crisis management framework.
- Regulatory reporting and rating tools:
  - Off-site Supervision System (OSS) used to receive most regular reports; some reports received as hard copies or excel soft copies, resulting in fragmented data not consolidated in a well-established database system.
  - Existing rating tools: CAMEL (for domestic banks) and ROCA (for foreign branches); scores range from 1-5 where (1) is best and (5) is worst.
  - Ratings are mostly qualitative, updated primarily during on-site missions; expert judgment framed by an approved Inspection Manual and Rating Methodology.
- Mission summary tasks:
  - Described interactions between risk-by-risk analysis, ICAAP/ILAAP and SRP.
  - Illustrated how a capital add-on could be based on SRP score and ICAAP/stress testing assessment.
  - Gathered information on CBJ current risk assessment methodology (CAMEL and ROCA).
  - Discussed adequacy of regulatory and supervisory frameworks and availability of information/data for SRP.
  - Devised main steps towards transition to RBS and roadmap for implementation.

### Conclusions and recommendations — implementation priorities and constraints
- Main observations:
  - CAMEL and ROCA evaluate bank risks with strong focus on credit risk but rely on qualitative guidance with lack of quantitative risk indicators to anchor ratings.
  - Improvement path: transition to SRP by reinforcing quantitative scoring through KRIs and qualitative analysis via specific questionnaires; develop written rationale linking risk-analysis results to final scores, capital/liquidity requirements, and supervisory measures.
- Data and IT constraints:
  - SRP is data-dependent; current data sources are fragmented and received in various formats (hard and soft copies), hindering automatic compilation of KRIs, statistical calibration, peer comparisons, and historical through-the-cycle analysis.
  - An IT effort (external or internal) is likely necessary; lack of such a project would increase manual compilation burden on examiners.
- Organizational and process issues:
  - Degree of formalization of annual bank reviews and risk analysis is limited; risk assessment is mainly carried out through comprehensive onsite missions that can be interrupted by compliance-oriented tasks (e.g., yearly financial statement validation), leading to longer and less risk-focused onsite missions.
  - CBJ should clearly define responsibilities between offsite and onsite functions for SRP implementation and revise BSD organization where necessary.
  - A delineated repartition of tasks between off-site and on-site activities is needed to support an effective SRP framework.
  - CBJ should organize a coherent full-scale supervisory cycle: individual bank risk profiling, formal annual SRP decisions, determination of supervisory priorities and preparation of the supervisory program, integration of SRP with enforcement and escalation procedures.
  - To improve supervisory effectiveness, CBJ should minimize time-consuming non-risk related tasks and balance offsite and onsite functions to ensure continuous monitoring and more risk-focused, targeted onsite missions.

### Strategic recommendation and high-level design
- Keep the SRP approach simple in its first version, proportionate to the size and main risks of the Jordanian banking sector and to the CBJ resources.
- Leverage existing reporting and tools where possible, while reinforcing data availability and formalizing guidelines for risk analysis.
- Integrate stress testing results and ICAAP analysis to achieve the forward-looking element of the SRP assessment.
- Design a matrix to link main SRP scoring to a range of capital add-on to the minimal Pillar one capital requirements.

### Phasing and prioritization
- Implement the SRP approach progressively based on prioritization of main risks according to the most prevalent risks in the Jordanian banking system.
- Add other types of risks (e.g., IRRBB, Cyber security, AML) after a first version is designed, calibrated and tested.
- Recognize resource and data constraints: "Establishing a first workable SRP system within a reasonable timeframe is already a challenge given the current resources allocation in the Banking Supervision Department, as well as the current data limitation."

### Core SRP framework blocks
- The common SRP framework can be built on four main blocks:
  - Business model and profitability analysis.
  - Assessment of internal governance arrangements and institution-wide controls.
  - Assessment of risks to capital and adequacy of capital to cover credit and operational risks at first stage and incorporating other risks including IRRBB and market risks at a later stage.
  - Assessment of risks to liquidity and adequacy of liquidity resources to cover these risks.

### Scoring, proportionality, and workload optimization
- Assess and score SRP elements on a scale of 1 to 4; the outcome forms the overall SRP assessment and supervisory view of institution viability.
- Use SRP results as the basis for supervisory measures and dialogue with banks.
- Apply proportionality by categorizing banks into four distinct categories (e.g., based on systemic importance and cross-border activities).
- Develop a minimum supervisory engagement model (frequency and intensity) based on bank category and SRP score.

### Data, IT, and supervisory database
- Key indicator monitoring should rely on a fully-fledged supervisory database.
- Consolidate all existing data sources available to CBJ (regulatory reporting, financial statements, banks’ ad-hoc reports, etc.) into a single supervisory database to:
  - Provide availability of data sets for risk-assessment purposes (i.e., not only point-in time but also through-the-cycle analysis).
  - Build up a statistical historical perspective.
  - Eliminate time-consuming compilation of different formats (soft and hard copies, PDF, XL, CVS).
- This medium-term project could call for in-house or external IT support.

### Treatment of Islamic banks
- Give special attention to Islamic banks within the SRP process.
- Islamic banking represents between 11.4 percent of the national domestic banking system in terms of assets.
- Run SRP process in parallel for Islamic Banks based on the same global methodology while taking into consideration their characteristics and ownership structure (some domestic Islamic banks are subsidiaries of larger domestic traditional banks).

### Three-step Roadmap to SRP (principal recommendations)
- Step 1: Design Phase — Overall SRP Architecture and Building Elements (Priority: High, Time Frame: ST)
  - Formalize overarching objectives of the SRP approach. Deliverable: High level intention note validated by CBJ’s Senior Management.
  - Categorize banks to four categories to determine supervisory intensity. Deliverable: Categorization of banks to determine supervisory intensity.
  - Define overall SRP architecture and main elements (main blocks of risks, potential weighting, interaction matrices, links to minimum capital requirements ranges/brackets). Deliverable: High-level SRP architecture and principles.
  - Specify which risk blocks to include in first version (proposal: Business model and profitability, Governance and Internal Control, Risks to Capital: Credit risk and operational risk, Risks to Liquidity). Deliverable: Validation of the risks’ blocks for the first version of the SRP.
  - Select main key risk indicators (KRIs). Deliverable: List of KRIs to be monitored.
  - Identify gaps in raw quantitative data and require needed information through regulation; evaluate IT assistance needs. Deliverable: Assessment of data gaps. Priority: High ST/MT.
  - Draft first version of qualitative questionnaires. Deliverable: First drafts of qualitative questionnaires. Priority: High ST/MT.
  - Define minimum documentation package required from banks regularly for SRP analysis. Deliverable: List of minimum supervisory documentation package.
- Step 2: Conception Phase — Risk Blocks and Calibration (Priority: High, Time Frame: ST/MT)
  - Review KRIs and qualitative questionnaires; propose first draft of scoring calibration for quantitative indicators based on data availability. Deliverable: Final components of main risk blocks. (Optional: scoring calibration attached to KRIs).
  - Test different weightings for building blocks and sub-risks to produce a global SRP score. Deliverable: Validation of the score weighting approach.
  - Follow up on IT development for the Supervisory Database. Deliverable: Submit user requirements on the Supervisory Database to the IT developer. Priority: High MT.
  - Ensure clear allocation of responsibilities between offsite and onsite functions; revise BSD organization if necessary. Deliverable: Potential proposal to CBJ senior management on BSD organization. Priority: High MT.
  - Consider AML/CFT integration decision. Deliverable: Decision on AML/CFT integration within SRP first phase. Priority: High MT.
  - Review and update ICAAP evaluation guidelines and stress-testing framework for integration. Priority: Medium MT.
  - Propose draft Regulation on IRRBB for integration under Risk to Capital. Priority: Medium MT.
- Step 3: Testing and Implementation Phase (Priority: High/Medium, Time Frame: LT)
  - Finalize calibration of KRIs scoring according to latest data sets. Priority: High LT.
  - Draft Examiner SRP Guidance Manual. Priority: High LT.
  - Conduct dry runs on a sample of banks to evaluate robustness and fine-tune methodology. Priority: High LT.
  - Propose a framework linking SRP scores to ranges of additional capital and liquidity. Priority: High LT.
  - Propose progressive implementation timeline according to resources and banks’ preparedness. Priority: Medium LT.
  - Integrate SRP into IT architecture to automate data compilation. Priority: High LT.
  - Organize training for supervisors (practical workshops) and awareness sessions for banks (managerial and operational levels). Supervisor training: High LT; Bank awareness: Medium LT.

### Scoring and supervisory linkage
- Specific SRP elements assessed and scored on a scale of 1 to 4.
- The overall SRP assessment represents the up-to-date supervisory view of the institution’s overall viability and forms the basis for supervisory measures.
- Propose a matrix linking SRP scoring to ranges of capital add-on to minimal Pillar one capital requirements.

### Appendix: Regular reports submitted by banks through the Off-site Supervision System (OSS)
- #1: Various risks — Financial sounds indicators — Quarterly — OSS system.
- #2: Various risks — Financial statements of banks — Quarterly, Semiannual, Annual — OSS System, and Hardcopy.
- #3: Credit risk, Problem assets, provisions — Detailed data about the exposure and provisions according to ifrs9 and to CBJ instructions no. (47/2009). — Semiannual, Annual — By email (Excel).
- #4: Large exposures risk and related parties — Large exposures reports — Monthly — OSS system.
- #5: Liquidity risk — Liquidity: Legal Liquidity. Liquidity Coverage Ratio (LCR). Maturity Ladder — Daily, Monthly, Quarterly — OSS system, and by email (Excel).
- #6: Regulatory capital adequacy — Quarterly — Hardcopy.
- #7: Various risk — Managing Assets-Liabilities in Foreign Currencies, and granting credit in foreign currency. Banks’ ownership of stocks and capital shares in Companies. — Monthly, Quarterly — OSS system and Hardcopy.
- #8: Pillar II ICAAP report — Annual — Hardcopy.

*IMF | METAC Jordan — Preface (tarea2024020)*

### Preface ................................................................................................................

### Preface

### Mission background and objectives
- A METAC mission was conducted from November 1 to 3, 2022, at Central Bank of Jordan (CBJ).
- Mission team: Mrs. Nehmat Hantas, Banking Supervision Advisor at METAC, and Mr. Sébastien Clanet, short-term expert from Banque de France.
- Purpose: assist CBJ supervisors in development of a supervisory risk-rating framework inspired by the European Supervisory Review and Evaluation Process (SREP) methodology.
- Project context: part of a multi-step project towards full implementation of Risk-based Supervision (RBS), focusing on defining steps and milestones to develop the Supervisory Review and evaluation Process (SRP).
- In-person location: Central Bank of Jordan (CBJ), Amman, Jordan.
- Meetings with: Head of Banking Supervision Department (BSD) Mr. Hussein Kofahi (executive manager); Mr. Marwan Said (consultant at BSD); heads of examiners Mrs. Zeinab Al-Jaafreh and Mr. Murad Assaf; group of supervisors from BSD.
- Closing meeting with Mr. Hussein Kofahi and Mr. Marwan Said to discuss roadmap, recommendations, and next steps.

### Executive Summary — core project thrust
- CBJ intends to enhance its risk-based supervisory framework and risk rating framework inspired by EU SREP and to progress toward RBS.
- Core element: implement a new Supervisory Review Process (SRP) aligned with international best practices while leveraging current supervisory reporting and rating tools.
- Mission recommendation: a progressive multi-step approach to implement full RBS, prioritizing a proportionate, simple, but robust SRP framework for analyzing and scoring banks.
- Key deliverables suggested:
  - Specific scoring guidance.
  - Potential IT support for database development and automation of key risk indicator (KRI) compilation.
  - Software applications for benchmarking.
- Project requires defined milestones and timeline for design, conception, testing, and implementation of SRP.
- Proposed SRP design: cover main risks of Jordanian banking system with high priority on credit risk; progressively add new risks; balance weighting of blocks and components to produce defendable scoring outputs.
- Implementation constraints noted: data gaps requiring a supervisory risk database, clearer allocation between off-site and on-site activities, and new regulations to integrate risks such as IRRBB.
- Resource implications: SRP implementation relies on strong local supervisory expertise, will be at least a medium-term project due to resource constraints and significant staff engagement.
- Roadmap to SRP discussed with CBJ to support authorities.

### Context — structure, metrics, and supervisory framework
- Banking sector size and composition:
  - Banks’ consolidated assets totaled JD 97.7 billion as at end-2021.
  - Sector accounts for approximately 97 percent of the financial sector’s total assets.
  - Number of banks: 21.
  - DSIB: six banks classified as Domestic Systemically Important Bank (DSIB).
  - Ownership: seven domestically owned banks, eight foreign-owned banks, six branches of foreign banks.
  - Islamic banks: four of 21 banks; total Islamic assets around JD 11.1 billion representing around (11.4 percent) of total banking sector assets.
  - Concentration: five largest banks account for 54 percent on a domestic consolidated basis.
  - Cross-border exposure: Jordan’s largest bank has over two thirds of its credit exposures outside Jordan.
- Capital and buffers:
  - Capital Adequacy Ratio (CAR) for banks stood at 18 percent on a consolidated basis, as of end-December 2021; Tier 1 capital composes 95 percent of CAR.
  - CBJ minimum CAR requirement: 12 percent, plus an additional 2 percent for banks with cross-border operations, in addition to a systemic DSIB buffer (up to 2.5 percent).
  - Capital conservation buffer: 2.5 percent.
  - Countercyclical buffer: (0 percent-2.5 percent), currently set at zero.
- Liquidity, asset quality, profitability:
  - Regulatory liquidity: 141.5 percent as at end December 2021.
  - Nonperforming loans (NPLs): average of 5 percent of total loans.
  - NPL coverage ratio: 79.9 percent of total classified loans.
  - Gross loans contribute approximately 55.8 percent of total assets; securities and trading related assets accounted for 32 percent (bulk is government securities).
  - Annualized average returns ending December 2021: return on assets 1 percent; return on equity 8.3 percent.
- Supervisory architecture and responsibilities:
  - Primary regulator/supervisor of banks: Central Bank of Jordan (CBJ).
  - Other authorities: Jordan Deposit Insurance Corporation (JODIC); Jordan Securities Commission (JSC); Amman Stock Exchange (ASE); Companies Control Department (CCD).
  - BSD structure: four offsite divisions and seven onsite supervisory groups (one group responsible for IT supervision); onsite groups also perform semi-annual financial statement analysis, follow up periodic reports, and study banks’ requests.
  - CBJ working to strengthen prudential supervision and to implement an Inspection Management System to improve onsite inspection procedures.
- Regulations issued (selected):
  - Regulatory Capital Instructions according to Basel III Standard No. 67/2016.
  - Capital Adequacy Instructions in accordance with amended standard No.15 issued by IFSB, No. 72/2018.
  - Legal liquidity instructions for commercial and Islamic banks.
  - LCR instructions.
  - ICAAP.
  - Maturity Ladder for commercial and Islamic banks.
- Recovery and resolution:
  - Article 80 of banking law no. 28 determines measures for banks facing problems.
  - CBJ is working on a draft guide for a banking crisis management framework.
- Regulatory reporting and rating tools:
  - Off-site Supervision System (OSS) used to receive most regular reports; some reports received as hard copies or excel soft copies, resulting in fragmented data not consolidated in a well-established database system.
  - Existing rating tools: CAMEL (for domestic banks) and ROCA (for foreign branches); scores range from 1-5 where (1) is best and (5) is worst.
  - Ratings are mostly qualitative, updated primarily during on-site missions; expert judgment framed by an approved Inspection Manual and Rating Methodology.
- Mission summary tasks:
  - Described interactions between risk-by-risk analysis, ICAAP/ILAAP and SRP.
  - Illustrated how a capital add-on could be based on SRP score and ICAAP/stress testing assessment.
  - Gathered information on CBJ current risk assessment methodology (CAMEL and ROCA).
  - Discussed adequacy of regulatory and supervisory frameworks and availability of information/data for SRP.
  - Devised main steps towards transition to RBS and roadmap for implementation.

### Conclusions and recommendations — implementation priorities and constraints
- Main observations:
  - CAMEL and ROCA evaluate bank risks with strong focus on credit risk but rely on qualitative guidance with lack of quantitative risk indicators to anchor ratings.
  - Improvement path: transition to SRP by reinforcing quantitative scoring through KRIs and qualitative analysis via specific questionnaires; develop written rationale linking risk-analysis results to final scores, capital/liquidity requirements, and supervisory measures.
- Data and IT constraints:
  - SRP is data-dependent; current data sources are fragmented and received in various formats (hard and soft copies), hindering automatic compilation of KRIs, statistical calibration, peer comparisons, and historical through-the-cycle analysis.
  - An IT effort (external or internal) is likely necessary; lack of such a project would increase manual compilation burden on examiners.
- Organizational and process issues:
  - Degree of formalization of annual bank reviews and risk analysis is limited; risk assessment is mainly carried out through comprehensive onsite missions that can be interrupted by compliance-oriented tasks (e.g., yearly financial statement validation), leading to longer and less risk-focused onsite missions.
  - CBJ should clearly define responsibilities between offsite and onsite functions for SRP implementation and revise BSD organization where necessary.
  - A delineated repartition of tasks between off-site and on-site activities is needed to support an effective SRP framework.
  - CBJ should organize a coherent full-scale supervisory cycle: individual bank risk profiling, formal annual SRP decisions, determination of supervisory priorities and preparation of the supervisory program, integration of SRP with enforcement and escalation procedures.
  - To improve supervisory effectiveness, CBJ should minimize time-consuming non-risk related tasks and balance offsite and onsite functions to ensure continuous monitoring and more risk-focused, targeted onsite missions.

*IMF | METAC Jordan — Preface (tarea2024020)*

### 23. It is recommended that the SRP approach is kept simple in its first version, proportionate to

### tarea2024020 - 23. It is recommended that the SRP approach is kept simple in its first version, proportionate to

### Strategic recommendation and high-level design
- Keep the SRP approach simple in its first version, proportionate to the size and main risks of the Jordanian banking sector and to the CBJ resources.
- Leverage existing reporting and tools where possible, while reinforcing data availability and formalizing guidelines for risk analysis.
- Integrate stress testing results and ICAAP analysis to achieve the forward-looking element of the SRP assessment.
- Design a matrix to link main SRP scoring to a range of capital add-on to the minimal Pillar one capital requirements.

### Phasing and prioritization
- Implement the SRP approach progressively based on prioritization of main risks according to the most prevalent risks in the Jordanian banking system.
- Add other types of risks (e.g., IRRBB, Cyber security, AML) after a first version is designed, calibrated and tested.
- Recognize resource and data constraints: "Establishing a first workable SRP system within a reasonable timeframe is already a challenge given the current resources allocation in the Banking Supervision Department, as well as the current data limitation."

### Core SRP framework blocks
- The common SRP framework can be built on four main blocks:
  - Business model and profitability analysis.
  - Assessment of internal governance arrangements and institution-wide controls.
  - Assessment of risks to capital and adequacy of capital to cover credit and operational risks at first stage and incorporating other risks including IRRBB and market risks at a later stage.
  - Assessment of risks to liquidity and adequacy of liquidity resources to cover these risks.

### Scoring, proportionality, and workload optimization
- Assess and score SRP elements on a scale of 1 to 4; the outcome forms the overall SRP assessment and supervisory view of institution viability.
- Use SRP results as the basis for supervisory measures and dialogue with banks.
- Apply proportionality by categorizing banks into four distinct categories (e.g., based on systemic importance and cross-border activities).
- Develop a minimum supervisory engagement model (frequency and intensity) based on bank category and SRP score.

### Data, IT, and supervisory database
- Key indicator monitoring should rely on a fully-fledged supervisory database.
- Consolidate all existing data sources available to CBJ (regulatory reporting, financial statements, banks’ ad-hoc reports, etc.) into a single supervisory database to:
  - Provide availability of data sets for risk-assessment purposes (i.e., not only point-in time but also through-the-cycle analysis).
  - Build up a statistical historical perspective.
  - Eliminate time-consuming compilation of different formats (soft and hard copies, PDF, XL, CVS).
- This medium-term project could call for in-house or external IT support.

### Treatment of Islamic banks
- Give special attention to Islamic banks within the SRP process.
- Islamic banking represents between 11.4 percent of the national domestic banking system in terms of assets.
- Run SRP process in parallel for Islamic Banks based on the same global methodology while taking into consideration their characteristics and ownership structure (some domestic Islamic banks are subsidiaries of larger domestic traditional banks).

### Three-step Roadmap to SRP (principal recommendations)
- Step 1: Design Phase — Overall SRP Architecture and Building Elements (Priority: High, Time Frame: ST)
  - Formalize overarching objectives of the SRP approach. Deliverable: High level intention note validated by CBJ’s Senior Management.
  - Categorize banks to four categories to determine supervisory intensity. Deliverable: Categorization of banks to determine supervisory intensity.
  - Define overall SRP architecture and main elements (main blocks of risks, potential weighting, interaction matrices, links to minimum capital requirements ranges/brackets). Deliverable: High-level SRP architecture and principles.
  - Specify which risk blocks to include in first version (proposal: Business model and profitability, Governance and Internal Control, Risks to Capital: Credit risk and operational risk, Risks to Liquidity). Deliverable: Validation of the risks’ blocks for the first version of the SRP.
  - Select main key risk indicators (KRIs). Deliverable: List of KRIs to be monitored.
  - Identify gaps in raw quantitative data and require needed information through regulation; evaluate IT assistance needs. Deliverable: Assessment of data gaps. Priority: High ST/MT.
  - Draft first version of qualitative questionnaires. Deliverable: First drafts of qualitative questionnaires. Priority: High ST/MT.
  - Define minimum documentation package required from banks regularly for SRP analysis. Deliverable: List of minimum supervisory documentation package.

- Step 2: Conception Phase — Risk Blocks and Calibration (Priority: High, Time Frame: ST/MT)
  - Review KRIs and qualitative questionnaires; propose first draft of scoring calibration for quantitative indicators based on data availability. Deliverable: Final components of main risk blocks. (Optional: scoring calibration attached to KRIs).
  - Test different weightings for building blocks and sub-risks to produce a global SRP score. Deliverable: Validation of the score weighting approach.
  - Follow up on IT development for the Supervisory Database. Deliverable: Submit user requirements on the Supervisory Database to the IT developer. Priority: High MT.
  - Ensure clear allocation of responsibilities between offsite and onsite functions; revise BSD organization if necessary. Deliverable: Potential proposal to CBJ senior management on BSD organization. Priority: High MT.
  - Consider AML/CFT integration decision. Deliverable: Decision on AML/CFT integration within SRP first phase. Priority: High MT.
  - Review and update ICAAP evaluation guidelines and stress-testing framework for integration. Priority: Medium MT.
  - Propose draft Regulation on IRRBB for integration under Risk to Capital. Priority: Medium MT.

- Step 3: Testing and Implementation Phase (Priority: High/Medium, Time Frame: LT)
  - Finalize calibration of KRIs scoring according to latest data sets. Priority: High LT.
  - Draft Examiner SRP Guidance Manual. Priority: High LT.
  - Conduct dry runs on a sample of banks to evaluate robustness and fine-tune methodology. Priority: High LT.
  - Propose a framework linking SRP scores to ranges of additional capital and liquidity. Priority: High LT.
  - Propose progressive implementation timeline according to resources and banks’ preparedness. Priority: Medium LT.
  - Integrate SRP into IT architecture to automate data compilation. Priority: High LT.
  - Organize training for supervisors (practical workshops) and awareness sessions for banks (managerial and operational levels). Supervisor training: High LT; Bank awareness: Medium LT.

### Scoring and supervisory linkage
- Specific SRP elements assessed and scored on a scale of 1 to 4.
- The overall SRP assessment represents the up-to-date supervisory view of the institution’s overall viability and forms the basis for supervisory measures.
- Propose a matrix linking SRP scoring to ranges of capital add-on to minimal Pillar one capital requirements.

### Appendix: Regular reports submitted by banks through the Off-site Supervision System (OSS)
- #1: Various risks — Financial sounds indicators — Quarterly — OSS system.
- #2: Various risks — Financial statements of banks — Quarterly, Semiannual, Annual — OSS System, and Hardcopy.
- #3: Credit risk, Problem assets, provisions — Detailed data about the exposure and provisions according to ifrs9 and to CBJ instructions no. (47/2009). — Semiannual, Annual — By email (Excel).
- #4: Large exposures risk and related parties — Large exposures reports — Monthly — OSS system.
- #5: Liquidity risk — Liquidity: Legal Liquidity. Liquidity Coverage Ratio (LCR). Maturity Ladder — Daily, Monthly, Quarterly — OSS system, and by email (Excel).
- #6: Regulatory capital adequacy — Quarterly — Hardcopy.
- #7: Various risk — Managing Assets-Liabilities in Foreign Currencies, and granting credit in foreign currency. Banks’ ownership of stocks and capital shares in Companies. — Monthly, Quarterly — OSS system and Hardcopy.
- #8: Pillar II ICAAP report — Annual — Hardcopy.

*IMF | METAC Jordan | tarea2024020 - 23.*

---


_Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024020.pdf_